Shares of Merrill closed Monday at $87.39. The stock rose to $88.90 in recent premarket trading.

Revenue from the firm's global-markets and investment-banking, or GMI, operations climbed 36% to $6.19 billion as pretax earnings surged 43% to $2.1 billion. International operations, which makes up 61% of the unit's revenue, continued to grow "significantly faster" than the U.S.

Included in GMI is non-equities trading. Its revenue surged 55% to $2.6 billion as revenue from mortgage-related activities fell amid the turmoil roiling the U.S. subprime market.

As with Wall Street's other major investment banks, subprime mortgages have been a keen issue, even more so since last month's near implosion of two Bear Stearns Cos. (BSC) hedge funds.

Merrill was the first among creditors to seize collateral, much of it mortgage-backed debt, from the internal Bear hedge funds. Merrill held an auction of $100 million of seized assets, selling a fraction of the $850 million in assets made available. At the time, the firm was expected to sell the rest in private transactions.

Merrill is a top underwriter of collateralized debt obligations, which pool debt instruments, often including mortgage-backed securities. They're then sliced into risky and less-risky pieces by Wall Street managers.

Late last year, Merrill paid $1.3 billion to buy First Franklin Financial Corp. from National City Corp. (NCC) just as the subprime mortgage market was beginning to spiral downward. Some wondered how that would affect the risk status of Merrill's mortgage-backed securities. But Merrill said after the first quarter that its non-prime U.S. mortgage activities has been less than 2% of the company's total revenue during the past five quarters.

Executives have been saying throughout 2007 that subprime troubles haven't spread to other parts of Merrill's portfolio, although First Franklin won't add to Merrill's earnings this year as first thought. Some analysts expected little second-quarter impact to Merrill's earnings from subprime mortgages.

Merrill is increasingly globalizing its operations and using more of its own money to make investments.

In April, it agreed to buy a $2.9 billion stake in Japan's fourth-largest bank by revenue, the latest deal to underscore the increasing attraction of Japan for Wall Street investment banks. Merrill's investment in Osaka-based Resona Holdings Inc. (8308.TO) marks the largest investment ever by a foreign company in a Japanese bank.

The deal also demonstrates the investment bank's increasing willingness to shoulder risk. Under O'Neal, Merrill has become involved in more and more private-equity deals in which it uses its own capital to take stakes in companies.

The company also repurchased $1.8 billion in stock during the quarter, including $557 million under the $6 billion authorization plan that was approved April 30.

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